The 2016 elections have laid the foundation for the most significant Congressional tax reform effort since the enactment of the Tax Reform Act of 1986. In the past several years, the leadership of the Congressional tax-writing committees (i.e., the House Ways and Means Committee and the Senate Finance Committee) have produced the blueprint for tax reform. More recently, President-elect Trump offered his own tax reform package and pledged to work with the Congress to enact tax reform this year. Against this backdrop, we anticipate that the House Ways and Means Committee will move a comprehensive tax reform bill during the first 100 days of the Trump administration. The Senate Finance Committee will likely move at a slower pace, but its leadership is equally committed to tax reform this year.

While the final version of the tax reform legislation is still under development, it may include the following elements:

1. a compressed rate structure for individuals with a top rate of 33 percent on ordinary income, a 50 percent deduction for investment income, and a corresponding reduction in the availability of various personal credits, deductions, and exclusions

2. a top corporate rate of 20 percent (although Trump has called for a rate as low as 15 percent) together with a similar reduction of various business tax preferences and credits

3. a general elimination of depreciation in favor of immediate expensing for depreciable business assets

4. a repeal of the estate tax and replacement with, for example, a capital gains tax on death, and

5. a transition to a territorial international tax system under which foreign profits of American companies would generally not be subject to U.S. tax, together with a deemed repatriation provision for previously accumulated earnings

As a result, this legislation will likely impact virtually every taxpayer in the United States.